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Winter Ices RPM’s Consumer Market

Friday, April 4, 2014

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The everlasting winter of 2013 put the big chill on sales of Zinsser, Rust-Oleum, DAP and other popular repair and maintenance brands, nicking the third-quarter results for parent company RPM International.

Fortunately, strong sales by the industrial companies that make up 65 percent of RPM's business warmed the quarter's bottom line, the Medina, OH-based holding company reported Thursday (April 3).

In the end, the showing was a dramatic turnaround from the third quarter of 2013, when RPM reported a $42.4 million loss due in large part to a $65 million legal settlement with the U.S. General Services Administration.

RPM Brands
RPM International Inc.

RPM International's industrial businesses make up 65 percent of the company's sales; consumer brands, 35 percent.

The long-running case involved allegations of price-gouging and substandard roofing materials in RPM's Tremco business.

'Choppy Times'

"We are pleased with RPM's third-quarter performance, especially in light of the severe cold weather during the quarter in North America, which had a pronounced effect on our consumer segment and impacted some of our industrial businesses as well," said Frank C. Sullivan, chairman and chief executive officer.

"Our strategically balanced business model continues to serve us well in these choppy economic times, with this quarter's industrial segment growth offsetting weather-induced weakness in the consumer segment.

"While the third quarter is typically affected by seasonality, the impact was even more pronounced this year."

Third-Quarter Highlights

RPM's net sales grew 2.3 percent to $863.4 million in the third quarter of fiscal 2014, compared to the prior-year period. Consolidated earnings before interest and taxes (EBIT) were $37.2 million, compared to the eight-figure loss of 2013's third quarter.

RPM
RPM International Inc.

An unusually harsh winter further depressed seasonally slow sales of consumer products, which are geared toward maintenance and repair projects.

Net income for Q3 of FY2014 was a record $16.2 million, or $0.12 per diluted share, compared to the $42.4 million ($0.33 per diluted share) net loss of the year-ago period.

In addition to the costs of the Tremco settlement—revised in Thursday's announcement to $68.8 million—RPM also recorded a $6.1 million adjustment in the third quarter of FY 2013 related to its acquisition of Viapol Ltda.

Compared to the adjusted results of the hard-hit year-ago quarter, EBIT improved 41.4 percent and net income improved 87.1 percent. Earnings per diluted share were up 71.4 percent.

Industrial Growth

Industrial segment sales grew 5.3 percent to $560.5 million in the third quarter, compared to the fiscal 2013 third quarter. Almost all of that growth was organic, RPM noted.

Industrial segment EBIT for the quarter was $22.7 million—a 162.4 percent improvement over the negative $66.3 million of a year ago.

"Our industrial segment has been improving sequentially over the last several quarters and turned in outstanding results this quarter, as virtually all sales growth was organic," said Sullivan.

"Excluding the negative impact of foreign exchange, this segment delivered 7.8 percent total sales growth."

Carboline
Carboline

RPM's industrial side delivered 7.8 percent total sales growth, excluding the impact of foreign exchange.

In addition, Sullivan said, the company's cost-cutting measures of 2013 had "translated into significant leverage to the bottom line. Particularly encouraging was improved performance by most of RPM's European business units, businesses serving U.S. construction markets, and our Legend Brands subsidiary."

Industrial segment sales for the first nine months of the year increased 3.8 percent, to $2.0 billion.

Consumer Challenges

Performance on the consumer side declined, however, with seasonally slow sales further battered by a harsh and extended winter.

Sales in RPM's consumer segment declined 2.7 percent to $302.9 million from the year-ago period; organic sales decreased 3.1 percent. Consumer segment EBIT decreased 11.4 percent from the third quarter of 2013.

On the other hand, nine-month sales on the consumer side increased by 12.0 percent to $1.1 billion over the first nine months of FY 2013. Organic sales growth accounted for 5.2 percent; acquisitions, for 6.8 percent.

Moreover, despite the weather's "dampening effect" on the third quarter, Sullivan said, the fundamentals of Rust-Oleum, DAP, Tremclad, Zinsser and other consumer businesses "remain very strong, and the recovery in residential housing is expected to continue."

Frank Sullivan
RPM International Inc.

Chairman and CEO Frank C. Sullivan said deferred winter projects should bring stronger spring and summer sales.

The segment's overall focus on repair and maintenance "should drive deferred sales into the spring and summer months," he said.

Looking Ahead

The company's cash flow remains strong, Sullivan said, keeping it actively in the hunt for "strong acquisition candidates that complement our existing product lines and expand RPM's geographic presence."

Quarterly ups and downs aside, the company is sticking to its fiscal 2014 guidance of 4 to 6 percent sales growth on the industrial side, and 8 to 10 percent growth on the consumer side, he added.

"We see improving momentum in our industrial segment, combined with pent-up demand in our consumer segment as a result of the severe weather this winter in North America," said Sullivan.

"Due to stronger-than-anticipated leverage in our industrial segment, resulting from solid performance in Europe and businesses serving U.S. construction markets, we are increasing full-year EPS guidance to a range of $2.10 to $2.15 per diluted share, or 15 percent to 18 percent year-over-year growth, versus the range of $2.05 to $2.10 per diluted share announced last quarter."

   

Tagged categories: Architectural coatings; Carboline; Earnings reports; Marine Coatings; Market; RPM; Rust-Oleum Corp.; Zinsser

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